Welcome to the MBIA Inc. First Quarter 2017 Financial Results Conference Call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor and Media Relations at MBIA. Please go ahead.

Thank you, Laurie. Welcome to MBIA's conference call for our first quarter 2017 financial results. After the market closed yesterday, we issued and posted several items on our websites, including our financial results press release, 10-Q, quarterly operating supplements, and statutory financial statements for both MBIA Insurance Corporation and National Public Finance Guarantee Corporation. We also posted updates to the listings of our insurance portfolios. Regarding today's call, please note that anything said on the call is qualified by the information provided in the Company's 10-K, 10-Q and other SEC filings, as our Company's definitive disclosures are incorporated in those documents. We urge investors to read our 10-K and 10-Q as they contain our most current disclosures about the Company and its financial and operating results. Those documents also contain information that may not be addressed on today's c call. The definitions and reconciliations of the non-GAAP terms included in our remarks today are also included in those documents, as our financial results press release, and our quarterly operating supplements. The recorded replay of today's call will become available approximately two hours after the end of the call, and the information for accessing it is included in yesterday's financial results press release. Now I’ll read our Safe Harbor disclosure statement. Our remarks on today's conference call may contain forward-looking statements. Important factors such as general market conditions in the competitive environment could cause our actual results to differ materially from the projected results referenced in our forward-looking statements. Risk factors are detailed in our 10-Ks and 10-Qs, which are available on our website at MBIA.com. The Company cautions not to place undue reliance on any such forward-looking statements. The Company also undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such statement is no longer accurate. For our call today, Jay Brown, Anthony McKiernan, and Bill Fallon will provide some introductory comments then a question-and-answer session will follow. Now, here is Bill Fallon.

Thanks, Greg. Good morning, everyone. National continues to make strong progress notwithstanding the ongoing challenging interest rate environment in Puerto Rico situation. For today, I’ll start with our Puerto Rico exposures, then I’ll comment on our new business production activities and I’ll finish with Nationals capital strength. On May 3rd Puerto Rico filed a petition for access to Title III protection under the PROMESA legislation that passed into law [ph] last year. Since Title III was created specifically as part of that legislation, we are now in some ways in uncharted waters. However, we believe that Puerto Rico and the oversight board in passing its fiscal plan failed to satisfy the preconditions for gaining access to Title III in the first place. Accordingly, National and assured guarantied have initiated litigation to contest the status legality enrolled the fiscal plan and request that the court stay to Title III proceedings. The entire Title III proceeding, including our case has been assigned to Judge Laura Taylor Swain of the U.S. District Court Southern District of New York who was appointed by U.S. Supreme Court Chief Justice John Roberts. Until more is known about the status of the Title III proceeding, there will be some uncertainty regarding the impact on the GO, COFINA in HK bonds that we ensure. It is clear however that the oversight board certified fiscal plan does not comply with PROMESA in many regards, including its requirement that legal structures and priorities be respected. Overall, we still believe that consensually renegotiating and restructuring its debt obligations through Title VI of PROMESA is a more appropriate and productive approach for Puerto Rico and its stakeholders, as has been done with PREPA. PREPA’s restructuring support agreement or RSA was modified by all of its parties last month, including the governor and…

Thanks, Bill. And good morning, everyone. We ended the first quarter with National's liquidity and capital and strong positions to meet any uncertainty related to Puerto Rico and the holding company well situated to meet its debt service requirements and meet our medium term leverage targets. As we discussed on our previous call, the sale of MBIA UK, a new financing facility to satisfy the Zohar II maturity were completed in the first quarter at MBIA Corp and Corps near to medium term strategy will be focused on maximizing recoveries from the Zohar CDOs and our Credit Suisse RMBS &B related litigation. Finally, we repurchased 4.8 million shares in the first quarter, which we believe provides material value to our shareholders. The company reported a consolidated GAAP net loss of $72 million or $0.55 per share for the first quarter of 2017, compared to a consolidated GAAP net loss of $78 million or $0.58 cents per share for the first quarter of 2016. The reduction in year-over-year consolidated GAAP net loss was primarily due to an increase of fair value gains associated with interest rate swaps and common stock warrants and lower foreign exchange losses, largely offset by greater loss and loss adjustment expenses, primarily in MBA Insurance Corp. and lower premiums earned. Combined operating income was $9 million for the three months ended March 31, 2017, compared with $16 million in the same period of 2016. The $7 million decline was primarily due to a $17 million decrease in net premiums earned. Adjusted book value per share increased to $33.69 as of March 31, 2017 from $31.88 as of December 31, 2016. The $1.81 increase in ABV per share was driven primarily by a decrease in common shares outstanding resulting from share repurchases during the first quarter of 2017.…

Thanks, Anthony. Good morning, everyone. Thanks again for joining us today. Last week our proxy voting was finalized during our annual shareholders meeting. All of our sitting directors were either elected or re-elected. And Bill Fallon was also elected to our board. Bill was nominated to the board reflecting the importance of National to our future value creation and his expanding responsibilities. All of the other proposals were also approved and our shareholders expressed their preference for us to maintain our named executive officers compensation vote on an annual basis. Earlier on this call, Bill referenced the increased uncertainty that has returned to the Puerto Rico situation since the beginning of this year. We believe that the heightened uncertainty preceding their Title III filings played a significant role in the downward pressure on our company's stock price. In response, during the first quarter we deployed some of the holding companies liquidity to repurchase shares at those lower prices, spending $40 million on share repurchases. And then as Anthony mentioned from the quarter end through May 1st - May 4th we spent an additional $4.2 million on share repurchase. As of May 4th, we had $44 million remaining under our existing share purchase - repurchase authorization. As Bill mentioned, we expect that National will make a request for a special dividend from the New York Department of Financial services later this year, if and when the situation in Puerto Rico clarifies. It is likely that supplemental holding company liquidity would then be deployed towards additional share repurchases and debt reductions. As Anthony noted, our first quarter share repurchase were the largest contributor to our one $1.81 increase to our adjusted book value during the quarter. And as I stated during our fourth quarter 2016 financial results conference call, strategic share repurchases are likely to be the most significant tool that we will have to increase adjusted book value over the near term until National's guarantee is more widely accepted by the market. We continue to be pleased with the progress that National is making regarding its re-entry into the marketplace and we expect that progress to become more significant when National gains the same S&P credit rating as its two new business competitors and as interest rates continue to rise. That concludes our prepared remarks. We will now prepare for the question-and-answer session of the call.

[Operator Instructions] Your first question comes from the line of Andrew Gadlin of Odeon Capital Group.

Hi, good morning. Thank you for taking my question. In terms of the losses booked at MDIA Corp., could you talk a little bit about what drove those losses, the slide in the operating supplement that details losses by the asset class, isn't there anymore. So if you could provide some of that information it would be great?

Sure. Good morning. Its Anthony. The losses for the quarter were primarily driven by model assumptions that we made were changed on our first and secondly lien RMBS exposures. On the first lien RMBS, after doing diligence visits with a number of our source [ph] of our first lien transactions, we came away with the view that loss severities related to the delinquent defaulted loans and those deals would continue to be elevated for a longer period of time than we had previously assessed. So we made changes in our models, essentially assuming that loss severities would stay higher for longer and that drove the loss reserve increase on first lien RMBS. On the second lien RMBS, we’ve exhibited for the last year, year and a half elevated voluntary prepayment rates and delinquencies which were both staying elevated for longer periods of time as well. So what we did there was change assumptions to both our voluntary prepay assumption and delinquency assumptions were essentially - we're keeping voluntary prepays at the current elevated levels and bringing them down over a slower period of time. I mean, on delinquencies given that we've settled in at a low but steady rate continue to keep those levels maintained for a longer period of time as these transactions wind down. So those were really the two the two changes for the quarter.

Got it. Thank you. And then in terms of Bill's remarks about having a – or applying for a special dividend as hopefully the picture in Puerto Rico improves in the second half of the year. What types of things could we be looking for that would be those types of positives?

Yeah. Let me give you two examples. The first one is the most important, as you know there is a restructuring support agreement that has been amended relating to PREPA that has been sent to the oversight board for their approval. If they approve it and move forward on the timeline that’s expected, PREPA should close their exchange and the new deal somewhere around September, October would be the estimate. So that would be a big milestone, as you know that's been something that's been worked on for almost three years at that point. So that would be perhaps the most important between now and year end. Second, as you know relates to all the other credits. It was announced yesterday that the judge will have the first session next week in Puerto Rico and we would hope that over the next several months we'll get greater clarity in terms of how that will proceed. So those be the things that we'd be looking for.

Got it. And do you think it's possible that the new judge would instruct the board to come up with a new fiscal plan?

We're going to wait and see and we could all speculate and I think you're well aware of all the comments that we've made and other creditors have made with regard to questions and lack of transparency on the fiscal plan. So we'll wait and see what the judge chooses to do on that issue.

Got it. Thank you very much.

Your next question comes from Chas Tyson of KBW.

Hey, guys. Good morning. I just want to follow up on the special dividend and kind of the clarity that you're looking for in Puerto Rico and particularly the second point that you noted Bill, just about you know, how the restructuring process unfolds as we go through this tail free process? I mean what kind of - can you talk about, what kind of clarity you'd be comfortable with on requesting a special dividend. You know, if things unfold positively or negatively. I mean how do you think about examples of exactly what kind of - what you look forward and then to pull the trigger on a special dividend request?

Yeah. Let me first jump back to PREPA, as you know when you count some of the bonds that we purchased related to PREPA, PREPA has been our biggest exposure in Puerto Rico and that's $1.4 billion was roughly 3%5 of our exposure when people really started focusing on Puerto Rico. So as I mentioned when that deal gets done later this year that will be a big part of our exposure that will have been restructured and we think put in a good situation from our perspective. So that’s perhaps the most important and that at that point we would view that there is certainty as it relates to the PREPA situation. With regard to the others which now is just starting to unfold, with regards this Title III proceeding, we would expect that the judge will start to one give some sense of procedurally how she's going to proceed. But at some point over the next several months I think you'll start to get some indication with regard to many of the issues that have been raised. So for example as you're well aware on COFINA is there a statutory lien, can the government use any of that money which in their fiscal plan they've essentially aggregated everything together. As you know, on the GOs cost issuer [ph] says those are the highest priority. There's been lots of back and forth between the deal holders and the COFINA holders. There is issues with regard to junior and senior COFINA. So there is a lot of issues. And again, we would expect that we'd start to get some sense of the direction where the judge is going on this. And again as I think, we've mentioned and others have mentioned, while it is at this point in a Title III most these situations end up getting settled in terms of consensual agreement. So there's still a lot that will happen between now and call it September, October, November and those types of things that we'll wait and we'll assess. But I think clarity and certainty is what we're looking for and that will play right into the special dividend that we've talked about.

Okay. And then how do you think about the sizing, potential special dividend request relative to your excess capital base, as well as relative to you know, when your peers got last year? And I guess the second part of that question is, to the extent that you are able to - your question [ph] get a special dividend, I mean, how do you think about the balance of share repurchases and debt paid down as you guys think are still looking to get the kind of middle investment grade rating?

With regard to the special dividend, we view it not so much as one and done, but an ongoing activity that we would be pursuing inside National. So as we've mentioned we have by our estimates at least $1.7 billion relative to the S&P calculation for AAA capital. And so if we went, we wouldn't sit there and say oh we just want a special dividend in 2017 and be done with it. This should be something given what we would expect even as the portfolio starts to grow somewhere in the future that we need to right size the capital. So why wouldn't be $1.7 billion that we'd be asking for? If we asked for $2, $300 million we'd also then be looking for additional special dividends in years after that. So ultimately we need to make sure that we right size the capital. We obviously need to trade that off against making sure that we maintain the highest ratings, so that National can continue to offer a compelling value proposition to investors. So we'll look at all those things. But we’re pretty optimistic in terms of the future in that regard.

Chas, this is Anthony. On the second part of that related to the holding company, even today without special dividends we’re managing the holding company. Number one obviously very focused on maintaining the necessary liquidity cushions, but also despite share repurchases and so forth moving towards the leverage targets we set for ourselves to get to that mid investment grade rating. So even with a special dividend that would not change the approach and the focus there and we would just manage that that balance in a way to make sure we still achieve the goal that we set.

Okay. And then last one for me, probably a question for Jay. I mean, can you just talk about the MBIA strategic goals over the next few years, we’re obviously in a situation where Puerto Rico is probably going be with us for a couple of years you know and bond insurance kind of penetration and production will probably be depressed compared to historical levers. How do you think about executing for shareholders in that kind of environment? And can you talk about maybe succession plan that you guys have done?

Two different questions there. In terms of the medium term, I think what you see is what you're going to get which is we're going to continue to manage from a financial basis to drive both book value and adjusted book value as high as we can over the medium term through the use of our excess capital and dividends and tax payments that come up from National. Obviously not relevant to the shareholder question, but we have a big task still remaining on the MBIA Corp. side to resolve both the recapture of the payments we made on the Zohar's and also settle the Credit Suisse. In terms of succession planning, the board has worked on this over the last five or six years. You’ve seen a number of changes over the last few years and you'll see a few more in the next couple of years.

Okay. Thanks very much guys.

Your next question comes from Michael Temple, a Private Investor.

Good morning, gentlemen. Regarding the growth outlook for the core business going forward which was briefly alluded to, when we look at the deleveraging that took place with roughly $8 billion of net amortizations, bringing the book down to a $102 billion. Can you maybe give us some guidance assuming a positive resolution with Puerto Rico that puts you in a better light? Do you believe there is good capacity for the marketplace to be more accepting of the MBIA name such that new production might begin to accelerate and perhaps balance off the continued deleveraging of your existing portfolio?

Yeah. Michael, to parse that, the deleveraging that you mentioned is going to continue to happen as you indicated, while it’s sometimes hard to predict exactly what the refunding things will be. We've seen the portfolio running off anywhere between sort of 25% and 35% percent in the last couple of years, and the first quarter this year continues that trend. So that will definitely continue to happen. And even as we send money up to the holding company through the - as of right dividend, until we do extraordinary dividends the ratio and in particular the leverage ratios could continue to come down to levels that nobody has ever seen and well below normal levels. So that will strengthen the company. In terms of the more important part of your question which is the growth, we believe that the value proposition for bond insurance is extremely compelling. We're at roughly an industry penetration of 6%. When we look at just our experience since 2014 we're growing at extremely rapid rates admittedly from a small base, but the more we're out in the marketplace the more we're insuring deals, the more attention we're getting, the more policies we're then insuring on top of that. So we feel very good about the outlook. We do take a very long-term approaches, interest rates have not been conducive to insurance at this point in time. But we do think interest rates are headed higher. I'm not going to predict exactly when that's going to happen and there's no magical level that interest rates have to get to. So again, we had a significant increase in 2016 in our production, it's continued at the beginning of this year and we think longer term that the penetration for the industry can be much higher and that issuers and their advisors will really benefit from looking at using insurance and lowering the cost of insurance to the municipality that's the issuer. So we feel very good about that.

To that point about the penetration rate in previous work that I've gone through, I thought I saw the numbers that suggest as an industry that maybe the peak penetration rate for the industry was perhaps on the order of 50%. You note that it's currently roughly 6% percent, not trying to pin you down to an exact prediction, but from what you've seen in your experience in the marketplace, you know, could six become 12, could six become 20% penetration over the next say two to four years as opposed to asking you to predict quarter-to-quarter?

First of all your reference is correct in it at its peak insurance penetration was over 50%. There were many years it ran between 50% and 60% pre- financial crisis. I think today with the fact that right now insurers are AA versus where they used to be AAA, there's a part of the market which is primarily the under rating - underlying rating which we AA or AAA which probably is not going to use insurance just given the strength of the bond insurers. But that still leaves probably roughly half the market. And if you insure sort of half of half you get numbers there in the mid 20s in that case. So I think in your example six could clearly go to 12 which you go to 20 and general I think people have thought that somewhere between 20% and 30% of the total market and keep in mind roughly issuance has been up around $400 billion level. So if there was penetration of 25% or 30% you're talking about somewhere between $100 billion and $120 billion that could be insured. So there's plenty of potential there and I think you're correct in the way you thought about it.

All right. And then one final question regarding Puerto Rico and the special dividend, since 35% of your exposure is in fact PREPA, and we all seem to be optimistic that this one restructuring will be put into force as you say September, October timeframe. If in fact that takes place as we also - will that bring enough clarity to your overall Puerto Rican, because clearly the rest of this is going to probably take much, much longer, with closure on PREPA be enough for you to be confident [ph] may go before the regulatory bodies and request some portion of that excess capital for a special dividend?

To your point, the non-PREPA clearly could take well past this year given that we're just starting Title III and it is unknown. With regard to PREPA, if that goes as scheduled, I think it is extremely likely that we would be talking to the Department of Financial Services about a special dividend.

And last question somewhat nuanced, but I'd appreciate your thoughts on it. Since we're talking about quote unquote excess capital and obviously the regulators are sensitive. But since it's excess capital above a AAA rating and there will be hopefully significant positive progress on fully one third of your book, any real reason to think that they wouldn't be amenable to some request at that time, even though there won't be much clarity on the remaining two thirds of the book?

We don't get into the habit of predicting the way regulators are going to respond to any situation. So we'll wait and see.

All right. Thank you very much.

[Operator Instructions] Your next question comes from the line of Peter Troisi of Barclays.

Hey. Good morning, guys. Just a follow up maybe to Andrew's question, initially on Corp. It sounds like the case reserves for first lien and second lien exposures maybe went up sequentially, but overall looks like the case reserves at Corp. in the aggregate went down. So I was just trying to connect those two and you know fill in the gaps. I mean, you know, is it - if that's the case, did the CDO reserves - case reserves go down in the quarter?

It's really more about the payment on Zohar II. So the reserve goes away on Zohar II and then we get into a recovery mode. So for GAAP it becomes a VIE and the first Stad [ph] it becomes salvage. So you're reserve - your last reserve for Zohar will go away.

Okay. Thanks.

At this time there are no further questions. I now turn the call to management for any additional or closing remarks.

Thank you, Laurie and thanks to all of you who listened to our call today. Please contact me directly if you have any additional questions. We also recommend that you visit our website at mbia.com for additional information on the company. Thank you for your interest in MBIA. Good day and good-bye.

Thank you. That does conclude the MBIA Inc. first quarter 2017 financial results conference call. You may now disconnect your lines and have a wonderful day.